According to Lewis Mumford, as well as numerous other proponents of decentralized industry like Pyotr Kropotkin and Ralph Borsodi, the main reason for large-scale factory production was originally to economize on horsepower. In the steam age, all the machines in a factory were connected by belts to the drive shaft from a single prime mover. The invention of the electric generator and electric motor, which made it possible to scale a machine to demand and situate it close to the market, eliminated this imperative. For Mumford, therefore, electrical power was the defining characteristic of his “neotechnic” phase, as distinguished from the older “paleotechnic” phase of steam power and large factories.

Michael Piore and Charles Sabel, writing inThe Second Industrial Divide, argued that it was possible to incorporate electrical power into manufacturing in one of two ways. The first, and most natural, was to take full advantage of its decentralizing potential and incorporate small-scale, general-purpose power machinery into craft production, in a local industrial district. The other was to incorporate electrical power into the old paleotechnic factory system. The second, the path which was for the most part taken, was the basis of American mass production industry.

The American economy took the second path largely as a result of state intervention. Without a centralized, high-volume railroad system–almost entirely a creation of the state–, and without the artificially low shipping costs resulting from it, there wouldn’t have been a single national market. It was only the existence of a unified national market, with artificially cheap distribution costs, that it was feasible for large manufacturing firms to serve a single national market.

Without this intervention, the American railroad system would likely have evolved as a large number of locally oriented rail networks, with the regional and national linkups that eventually developed coming later and being much lower in capacity. In this environment, in the natural course of affairs, local manufacturers would have sprung up to serve the local markets, and electrical power would have been integrated into this local industry. The natural state of affairs, in short, would have been for the second industrial revolution to turn the American economy into a hundred or more local networked economies on the Emilia-Romagna pattern.

But this didn’t happen. The centralized state, in alliance with the old paleotechnic interests, coopted the neotechnic revolution by means of a massive, top-down exercise in social engineering.

Mumford called the sidetracking of neotechnic potential, and its incorporation into the paleotechnic framework, a “cultural pseudomorph.” Neotechnic had not “displaced the older regime” with “speed and decisiveness,” and had not yet “developed its own form and organization.” The following quotes are from Technics and Civilization.

Emerging from the paleotechnic order, the neotechnic institutions have nevertheless in many cases compromised with it, given way before it, lost their identity by reason of the weight of vested interests that continued to support the obsolete instruments and the anti-social aims of the middle industrial era.

Paleotechnic ideals still largely dominate the industry and the politics of the Western World…. To the extent that neotechnic industry has failed to transform the coal-and-iron complex, to the extent that it has failed to secure an adequate foundation for its humaner technology in the community as a whole, to the extent that it has lent its heightened powers to the miner, the financier, the militarist, the possibilities of disruption and chaos have increased….

The new machines followed, not their own pattern, but the pattern laid down by previous economic and technical structures….
The fact is that in the great industrial areas of Western Europe and America…, the paleotechnic phase is still intact and all its essential characteristics are uppermost, even though many of the machines it uses are neotechnic ones….

We have merely used our new machines and energies to further processes which were begun under the auspices of capitalist and military enterprise: we have not yet utilized them to conquer these forms of enterprise and subdue them to more vital and humane purposes….

Not alone have the older forms of technics served to constrain the development of the neotechnic economy: but the new inventions and devices have been frequently used to maintain, renew, stabilize the structure of the old social order….

The present pseudomorph is, socially and technically, third-rate. It has only a fraction of the efficiency that the neotechnic civilization as a whole may possess, provided it finally produces its own institutional forms and controls and directions and patterns. At present, instead of finding these forms, we have applied our skill and invention in such a manner as to give a fresh lease of life to many of the obsolete capitalist and militarist institutions of the older period. Paleotechnic purposes with neotechnic means: that is the most obvious characteristic of the present order….

A similar metamorphosis is possible in culture: new forces, activities, institutions, instead of crystallizing independently into their own appropriate forms, may creep into the structure of an existing civilization…. As a civilization, we have not yet entered the neotechnic phase…. [W]e are still living, in Matthew Arnold’s words, between two worlds, one dead, the other powerless to be born.

As a result, American industry was diverted into a Sloanist mass production dead end for a century. As Sabel and Piore put it, “it took almost a century… to discover how to organize an economy to reap the benefits of the new technology.”

The first stage of the pseudomorph involved the integration of electrical power into a paleotechnic factory framework: the use of enormously expensive, product-specific machinery, from which followed the need to run the machinery at full capacity to minimize unit costs; it was consequently necessary to divorce production from demand, to keep the machines running, and worry about selling the stuff later. From this, in turn, followed the need for the corporation to exert control over society at large, in order to guarantee the output would be consumed and no glut of surplus goods would stop the wheels from turning. The logical conclusion of the system was planned obsolescence, brand differentiation, high-pressure marketing, and all the rest of it. And mountains of waste: mountains of reparable goods in the landfills, mountains of inventory in the factories, mountains of economically useless goods produced for the military-industrial complex whose primary function was to destroy wealth and prevent it from piling up too fast.

When this stage became unsustainable, the pseudomorph entered a second, weaker stage that Mumford had failed to anticipate. The crisis of unsustainability struck the Western industrial economies around 1970, after having been postponed for a generation by World War II. World War II had temporarily solved the chronic tendencies toward overinvestment and underconsumption, by blowing up most of the plant and equipment in the world outside the U.S. But the crisis tendencies returned in the 1970s, along with the grandfather of today’s Peak Oil crisis.

In this second stage– pioneered by Taichi Ohno as lean production at Toyota and by the flexible manufacturing firms in industrial districts like Emilia-Romagna–the corporate economy began to incorporate technologies and ways of organizing production that lived up to the original neotechnic vision.

According to Piore and Sabel, the shift to lean production in America from the 1980s on was in large part a response to the increasing environment of macroeconomic uncertainty that prevailed after the resumption of the crisis of overaccumulation, and the oil shocks of the ’70s. Mass-production industry is extremely brittle—i.e., it “does not adjust easily to major changes in its environment.” The question is not just how industry will react to resource depletion, but how it will react to the kinds of wildly fluctuating prices and erratic supplies.

Conversely, though, the system prevailing in industrial districts like Emilia-Romagna is called “flexible manufacturing” for a reason. It is able to reallocate dedicated capital goods and shift contractual relationships, and do so quite rapidly, in response to sudden changes in the environment. Although craft production has always tended to expand relative to mass-production industry during economic downturns, it was only in the prolonged stagnation of the 1970s and ’80s that it began to break out of its peripheral status, so that lean manufacturing techniques came to define the industrial system.

From the second industrial revolution at the end of the nineteenth century to the present, economic downturns have periodically enlarged the craft periphery with respect to the mass-production core—but without altering their relationship. Slowdowns in growth cast doubt on subsequent expansion; in an uncertain environment, firms either defer mass-production investments or else switch to craft-production techniques, which allow rapid entry into whatever markets open up. The most straightforward example is the drift toward an industrial-subsistence, or -repair, economy: as markets stagnate, the interval between replacements of sold goods lengthens. This lengthened interval increases the demand for spare parts and maintenance services, which are supplied only by flexibly organized firms, using general-purpose equipment. The 1930s craftsman with a tool kit going door to door in search of odd jobs symbolizes the decreased division of labor that accompanies economic retrocession: the return to craft methods.

But what is distinctive about the current crisis is that the shift toward greater flexibility is provoking technological sophistication—rather than regression to simple techniques. As firms have faced the need to redesign products and methods to address rising costs and growing competition, they have found new ways to cut the costs of customized production…. In short, craft has challenged mass production as the paradigm.

In the case of small Japanese metalworking firms, American minimills and the Pratese textile industry, the same pattern prevailed. Small subcontractors of larger manufacturing firms “felt the increasing volatility of their clients’ markets; in response, they adopted techniques that reduced the time and money involved in shifting from product to product, and that also increased the sophistication and quality of the output.” In Italy and Japan the subcontractors have federated among themselves to create flexible manufacturing networks and reduce their dependence on any one outlet for their products.

But even though the corporate economy returned to the original potential of neotechnic production technologies, it did so within a paleotechnic institutional framework, in which lean and flexible manufacturing processes continued to be governed by enormous corporations that retained control over finance, marketing, and intellectual property.

And even lean production technology failed to live up to its full potential in an economy still based on a “warehouses on wheels” (or in container ships) distribution model. The true potential of lean manufacturing is to eliminate inventory altogether by gearing production to demand. It doesn’t matter how lean a factory is internally, if the inventory is just swept under the rug–or into the factories and trucks, rather–with a thousand-mile distribution chain. True lean production will only be achieved in a completely relocalized economy, in which the machinery is not only scaled to production flow within the factory, but the factory itself is scaled as closely as possible to local demand and sited as close as possible to the point of consumption.

The good news is the second stage of the pseudomorph is just as unsustainable as the first. As the old corporate institutions depend more and more on “intellectual property” to capture value from a direct production process they no longer control, they become increasingly vulnerable. As the production process becomes networked, and controlled almost entirely by the subcontractors, the corporation becomes just another potentially redundant node to be treated as an obstruction and bypassed. And as Eric Hunting has argued in the past, the increasingly modular product designs that corporate capitalism has undertaken for its own purposes are yet another way the system is digging its own grave.

“Cognitive capitalism” is viable only so long as patents and copyrights are enforceable, and people are willing to respect their legitimacy. The entire business model, not only of the corporate dinosaurs of the entertainment and software industries, but of the physical manufacturers whose product prices consist mostly of embedded rents on “intellectual property” rather than actual labor and material costs of production, will collapse as soon as those engaged in actual production see them for the useless eaters they are.

The return of the old crises of overaccumulation and underconsumption with the latest economic disaster, the growing untenability of global or even continental supply chains in an era of Peak Oil, the impossibility of capturing value from “intellectual property” in an age of strong encryption and bittorrent, and above all the implosion of production costs and overhead at the low end from quantum improvements in miniaturized machine tool technology and crowsourced aggregation of small-scale capitals, mean we’re in for “interesting times.”